Educational Articles

Mutual Fund Screen: Top Performing Health Funds, First Quarter 2013

Natalia Anikeyev and John D. Burke
| May 02, 2013

Value Line’s Health objective group is a fairly small, yet surprisingly diverse, collection of mutual funds. Clearly, the funds in this category invest the vast majority of their assets in healthcare and related businesses. That said, there are a number of different variants within what would seem an otherwise narrow space.

The two biggest areas of differentiation are biotechnology and general healthcare funds. The former includes Franklin Biotechnology Discovery Fund (FBDIX), which focuses exclusively on companies in the biotechnology sector. Often these are small companies with novel drug compounds in the testing stage of research. The latter, meanwhile, may own shares of biotech companies, but enjoy a much broader mandate to invest in healthcare across all of its subsectors, as does T. Rowe Price Health Sciences Fund (PRHSX). These offerings often own both mature companies, like the major pharmaceutical firms, and developing companies, like the biotechs or small medical device makers.

There are, of course, index offerings, such as Vanguard Health Care Index Fund (VHCIX), and leveraged funds, such as ProFunds Biotech Ultra Sector Fund (BIPIX) and ProFunds HealthCare UltraSector Fund (HCPIX). In addition, funds take different approaches to foreign exposure, with some using words like “global” in their name to highlight their worldwide focus while others may have a more domestic focus.

There are also funds that focus on subsectors beyond the more established biotech niche, including ProFunds Pharmaceuticals UltraSector Fund (PHPIX), a leveraged fund centered on drug stocks, Fidelity Select Medical Delivery Fund (FSHCX), and Fidelity Select Medical Equipment and Systems Fund (FSMEX). Some of these niche categories are so narrow that there is only one fund specializing in the space (such as the two Fidelity offerings), while others have multiple entrants, such as the drug-focused ProFund.

Ultimately, if there is a particular healthcare niche one is interested in, there might be only one fund to fill the need—it’s just important to ensure that investment is managed in a way that is complementary to one’s overall approach. For most investors, however, a broad-based healthcare-focused fund is probably most appropriate.

Over the long term, the Health objective group has been a good performer relative to the broader market, as measured by the Russell 3000 Index. For the 10-year period ended March 29, 2013, the group had an annualized gain of 9.9%, while the Index reported an annualized gain of 9.2%. Looking at the past five years and three years, the group had gains of 10.8% and 14.7%, respectively, while the Index reported increases of 6.3% and 13.0%. During the one-year period ended March 29, 2013, the Health objective group reported a return of 22.4%, compared with 14.6% for the Russell 3000 index. The group has a better-than-average risk rank of 2, indicating that funds in this group might appeal to many investors, including those that are risk-adverse.

Fund Name: Kinetics Medical Adv FundTicker: KRXAXYear-to-Date Return: 20.49%Investment Advisor: Kinetics Asset Management LLCBenchmark: S&P 500 Index and NASDAQ Composite Index Objective: Long term growth of capitalInvestment Strategy:• Non-diversified portfolio that invests all of its investable assets in medical assets.• Invests at least 80% of its net assets plus any borrowings for investment purposes in common stocks, convertibles securities, warrants.• Invests primarily in the equity securities of US and foreign companies (engaged in medical research, pharmaceutical and medical technology industries).• Fund focuses in cancer research and medical instrument manufacturers and developers (such as pharmaceutical manufacturers, biotech and medical research companies).• May also invest in ETFs and write and sell options.• May invest up to 20% of its total assets in convertible and non-convertible debt securities.Manager's Philosophy:• Invest in diverse array of companies (medical research, pharmaceutical development, and manufacturing).• Research themes (genome research, anti-angiogenesis, immunotherapy, contract research companies).